Microsoft Exec Slams Door on Yahoo Deal Speculation

If there was any lingering doubt about whether Microsoft's recent announcement to buy online advertising firm aQuantive spelled the end of its dalliance with Yahoo, they were laid to rest yesterday.

In a discussion at the Goldman Sachs Internet Conference in Las Vegas, Yusuf Mehdi, Microsoft’s chief advertising strategist, said that while "Yahoo has a great business and great audience asset...from where we are today, we think we have all the pieces we need to move forward." Any more purchases related to Microsoft's efforts to rev up its advertising business will be much smaller in nature, Mehdi added.

Microsoft had held informal talks with Yahoo for some time about a possible merger, in order to better compete against Google, which in April agreed to buy online advertiser DoubleClick for $3.1 billion. That set off a round of furious ad firm purchases, as major players became increasingly panicked about being left out of the burgeoning online advertising market. The last major acquisition was Microsoft's $6 billion purchase of aQuantive.

Mehdi also discussed the direction in which he believes online advertising will move in the future. Currently, most online advertising money is made through "contextual" advertising. Contextual advertising is search-based; when a user types a search query into Google, Yahoo, MSN or other search engine, text-only ads appear that are relevant to the search terms.

Mehdi expects that to change, claiming that "hundreds of thousands of advertisers" are growing unhappy with contextual advertising. "Many are very unhappy with contextual, because contextual just doesn't deliver the results, doesn't perform," he said.

"It's no longer just about search," Mehdi continued. "It's absolutely a converged marketplace. What's exploding is not paid search, but what's going on with display advertising."

That's where the aQuantive buy comes in. "The acquisition of aQuantive is a game-changer for us. We feel good that we have all the pieces we need to be one of the top ad platforms," Mehdi said. He also mentioned that Microsoft currently has about 80,000 advertisers in the past year through its adCenter platform, but said Microsoft is shooting for a much greater number. "Absolutely you want to have hundreds of thousands of advertisers overall, at a minimum, to have scale across all those things," like new opportunities for upcoming advertising markets like mobile devices and IPTV, Mehdi explained.

Ironically, though, a few minutes later, Mehdi argued that search still has great potential as an advertising vehicle, and that Microsoft will continue its efforts to eat into Google's domination of that arena. "Still today across any [search] engine, 35 percent of queries go unanswered. How do you solve that? It's about software algorithms; knowing more about the user; performance and computation; the size of the index. It's a whole set of things that no one, not even Google, has solved. If you can make a 10 percent improvement in answering people's questions, you've completely changed the game on search, and I think that's the opportunity."

About the Author

Keith Ward is the editor in chief of Virtualization & Cloud Review. Follow him on Twitter @VirtReviewKeith.